Processes to Resolve Undelivered
and Expired Refunds Are Generally Effective

August 31, 2006

Reference Number:2006-40-133

This
report has cleared the Treasury Inspector General for Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.

This report presents the results of our review to determine whether
the Internal Revenue Service (IRS) is resolving undelivered and expired refund
check conditions efficiently and effectively.We evaluated the current resolution processes and reviewed samples of
undelivered and expired refund checks to determine whether the processes might
be improved.

Synopsis

The IRS issues over
100 million refunds annually to taxpayers.While taxpayers cash most refunds, hundreds of thousands are returned to
the IRS as undeliverable or expire without ever being cashed.The IRS offers information via telephone, web
site, and publications to help taxpayers claim undelivered or expired
refunds.The IRS also has systemic
processes to reissue refunds automatically when it receives new addresses for
taxpayers who are owed refunds.Nevertheless, thousands of refunds go unclaimed each year.

The IRS’ processes
for resolving undelivered and expired refunds are generally effective.The IRS reissues refunds if the original
refunds either were returned undeliverable or credited back to taxpayers’
accounts when the original refunds were not cashed within a specific
period.The IRS eliminated much
unproductive research when it recently revised its procedures to discontinue
research of each Undelivered Refund Check Notice. We estimate that, of the 207,750 Tax Year
2003 undelivered refunds still outstanding at the end of December 2004, 93
percent were resolved by the end of December 2005.Analysis of a statistical sample of 400 Tax
Year 2001 cases unresolved in 2004 showed many of these older cases were
resolved within another year.The IRS’
efforts to get taxpayers their refunds were reasonably successful; however, the
IRS could enhance its processes to improve the timeliness and ease of getting
refunds reissued to taxpayers or their estates.

IRS
processes for resolving undelivered and expired refunds are generally
effective; however, improvements to the processes could reduce taxpayer burden
and improve customer service.

The IRS could improve the Undelivered Refund Check Notice sent to taxpayers explaining how to
obtain refunds after checks have been returned undeliverable.Our analysis of a statistical sample of 396 Tax
Year 2003 undelivered refunds showed that processing time could be reduced by about
a week if the IRS directed taxpayers to make contact by telephone rather than
by written correspondence.Also, although
the IRS has plans to address this issue, the current Undelivered Refund Check Notice
does not direct taxpayers to the IRS Internet web site, IRS.gov, as another
available alternative.Additionally, a
higher proportion of Hispanic surname undelivered refund cases were not
resolved, indicating that some of these taxpayers may not respond because they
are having difficulty understanding the English-only Undelivered Refund Check Notice.

Processing of undelivered or expired refunds of deceased
taxpayers could be improved.Our review
of a statistical sample of 400 older cases from Tax Year 2001 indicated a
higher proportion of deceased taxpayer cases in the unresolved cases than in
the resolved cases.Currently,
undelivered and expired refunds for deceased taxpayers are treated the same as
other undelivered and expired refunds.A
subsequent tax return filing was the most frequent means of obtaining contact
information for the older cases.However, the IRS normally does not receive subsequent returns for
deceased taxpayers.Depending on the
situation, an executor may not know an undelivered or expired refund is owed to
the deceased taxpayer.

Recommendations

The Commissioner, Wage and Investment Division, should
revise the Undelivered Refund Check Notice to emphasize response by telephone
and Internet.Additionally, the Undelivered
Refund Check Notice should include sufficient information in Spanish to explain
its purpose and to direct taxpayers to call a telephone number where they can
receive Spanish-language assistance.The
Commissioner, Wage and Investment Division, also should ensure deceased
taxpayer accounts with significant credit balances are identified and reviewed
as soon as possible after the refund check has been returned undeliverable and
prior to an expired refund being reissued.

Response

The IRS partially agreed with the first recommendation and
agreed with the second recommendation.The Wage and Investment Division will update the Undelivered Refund
Check Notice to publicize the different options available for taxpayers to
update their address with the IRS and to advise taxpayers in Spanish (after the
toll-free telephone number) that assistance is available in Spanish by calling
the toll-free number.In addition, the Wage
and Investment Division will do further research in the area of deceased
taxpayer accounts to determine if procedural changes are warranted.IRS management did not agree to eliminate the
bottom portion of the Undelivered Refund Check Notice or to discontinue sending
the taxpayer a return envelope.The IRS does
not believe eliminating these items would provide good customer service.Management’s complete response to the draft
report is included as Appendix VII.

Office of Audit
Comment

While we believe eliminating these items would provide
faster, more efficient customer service with lower mailing costs, we accept the
IRS’ decision to continue to provide taxpayers with the return mail option.

Copies of
this report are also being sent to the IRS managers affected by the report
recommendations.Please contact me at
(202) 622-6510 if you have questions or Michael E. McKenney, Assistant
Inspector General for Audit (Wage and Investment Income Programs), at (202)
622-5916.

The Internal Revenue
Service (IRS) issues over 100 million refunds annually to taxpayers.While taxpayers cash most refund checks, hundreds
of thousands are returned to the IRS as undeliverable or expire without ever
being cashed.The IRS offers information
via telephone, web site, and publications to help taxpayers claim undelivered
or expired refunds.The IRS also has
systemic processes to reissue refunds automatically when it receives new
addresses for taxpayers who are owed refunds.The United States Postal Service (USPS) periodically sends an electronic
listing with new addresses to the IRS.The IRS uses this information to reissue refund checks to taxpayers.In addition, the IRS reissues refunds systemically
when a tax return with a new address is received and posts to the taxpayer’s
account.Nevertheless, thousands of
refunds go unclaimed each year.

The IRS coordinates
with the Department of the Treasury Financial Management Service (FMS) to send
refunds to taxpayers.The IRS is
responsible for providing the FMS with all the information it needs to send
refund checks.The FMS is responsible
for mailing the refund checks or processing direct deposits to taxpayer bank
accounts based on IRS directions.

For a number of
reasons, some of these checks cannot be delivered by the USPS and are returned
as undeliverable.If the USPS cannot
deliver a refund check to the taxpayer’s address, it will return the check to
the FMS.The FMS cancels undelivered
refund checks weekly and transmits this information to the IRS.The FMS also transmits to the IRS information
for refunds that have not been cashed within 12 months of issuance and are
considered expired.After receiving
undelivered and expired refund information from the FMS, the IRS credits the
refund amounts back to the taxpayers’ accounts.The IRS subsequently attempts to send these refunds back to taxpayers.

This review was performed at the Customer Account Services
function of the Wage and Investment Division Headquarters in Atlanta, Georgia,
and the IRS Submission Processing Site at the Fresno Campus[1]
in Fresno, California, during the period September 2005 through March 2006.Data from the IRS Individual Master File[2]
were used to review information nationally.The audit was conducted in accordance with Government Auditing Standards.
Detailed information on our audit
objective, scope, and methodology is presented in Appendix I.Major contributors to the report are listed
in Appendix II.

The IRS’ processes for resolving undelivered and expired
refunds are generally effective.These processes
provide most taxpayers with another refund after the original refund either was
returned undeliverable or credited back to the taxpayer’s account when the
original refund was not cashed within a specific period.However, while generally effective, the processes
could be enhanced to provide faster service with fewer resources.

When a refund check is returned undeliverable, the IRS will
issue a new check immediately if it received new address information after the
initial refund check was issued.If no
updated address information was received, an Undelivered Refund Check Notice (Notice)
is sent to the same address. The Notice
informs the taxpayer that a refund check was returned undelivered and requests
a correct address.The taxpayer is asked
to complete a form at the bottom of the Notice and return it to the IRS in the enclosed
envelope provided.The Notice also has a
telephone number for taxpayer assistance.

If the Notice is returned undeliverable, no additional
actions are taken until the taxpayer contacts the IRS or files a return with an
updated address or the USPS provides an updated address.Prior to Fiscal Year 2006, employees researched
all Notices that were returned as undeliverable to try to locate better address
information.The IRS eliminated much
unproductive research when it recently revised its procedures to discontinue
research of each Undelivered Refund Check Notice.A refund is reissued systemically (i.e.,
without further review of the case) when the address on a taxpayer account is
updated by USPS information or by the taxpayer filing a subsequent income tax return.However, the primary source of systemic
changes is subsequently filed income tax returns with updated addresses.

Sometimes the USPS returns the Notice to the IRS with an
expired updated address label on the envelope. When this occurs, employees will send a letter
to the expired address requesting the taxpayer to verify that it is a current
address.If the taxpayer responds, the
IRS will reissue the refund.

Procedures for resolving expired refunds are similar to
undelivered refunds but vary depending on the amount of the refund.With limited exceptions, the IRS reissues lower
dollar refunds along with a notice explaining the reason for the reissued refund.[3]For higher dollar refunds, the IRS issues a
notice informing the taxpayer that the check has expired and will not be reissued
until the taxpayer responds.[4]No special action is taken for refunds under $10.The processing of undelivered and expired
refunds is illustrated in Appendix V.

The volumes of notices sent for undelivered and expired
refunds have fluctuated in recent years, as shown in Figure 1.This is due primarily to additional individual
income tax refunds related to the Economic Growth and Tax Relief Reconciliation
Act of 2001[5]
and the Jobs and Growth Tax Relief Reconciliation Act of 2003.[6]Sending millions of additional checks caused
additional undelivered and expired checks.Another factor is the increased use of electronic filing and direct
deposit.Errors are reduced with
electronic transmissions as opposed to manual keying of data by the IRS.Additionally, direct deposits generally bypass
the paper check process unless there is a transcription error in the direct
deposit information.Electronic filing
and direct deposits result in more accurate and faster processing of refunds.

Figure 1: Volumes of Refunds
Issued and Undelivered and Expired Notices
Sent by the IRS During Fiscal Years 2000–2005

The IRS’ efforts to resolve undelivered and expired refunds
appear to be reasonably successful.To
obtain information on undelivered refund characteristics, we selected two
samples—one from Tax Year 2003 to examine the more recent cases and one from
Tax Year 2001 to examine the older cases.For our Tax Year 2003 undelivered refund sample, we took a statistical
sample of 396 cases from the 207,750 Tax Year 2003[7]
refunds that were undelivered as of the end of Calendar Year 2004.As of the end of Calendar Year 2005,
approximately 93 percent of our sample cases had been resolved,[8]
and 7 percent were still unresolved.

Undelivered refunds and expired check
refunds that have not been reissued for other reasons will automatically be
reissued when a subsequent tax return posts to the taxpayer’s account or when
the IRS receives a new taxpayer address from the USPS.If the taxpayer does not file a subsequent
return and no new address is obtained, after approximately 3 years of
inactivity, the refund amount will be moved automatically from the taxpayer’s
account into the IRS Excess Collections account.However, subsequent activity on the
taxpayer’s account can reverse the transaction and restore the credit to the
taxpayer’s account.

We also determined the IRS continues to resolve older
undelivered and expired refund cases.The
IRS issued approximately 191.4 million[9]
individual refunds related to Tax Year 2001.Our analysis indicated approximately 634,000 refunds were undelivered or
expired.About 39,000 were still unresolved,
with a credit balance of at least $100[10]
as of the end of December 2004.Our
statistical sample of 400 of the approximately 39,000 unresolved Tax Year 2001 refunds
showed that many of these cases were resolved within another year.These older sample cases were resolved most
often by a subsequent income tax return with new address information posting to
the taxpayer’s account. Other actions
that resolved cases included taxpayers contacting the IRS to inquire about a
refund and address updates from the USPS.Most of the cases that remained unresolved had not had a return filed on
the account since Tax Year 2001.

For the most part, the IRS is making a reasonable effort to
provide taxpayers with refunds due them.However, the IRS could enhance
its processes to improve timeliness and efficiency.

The IRS
should consider more efficient and effective means of processing change of
address information to minimize costs and ensure refund checks are reissued to
taxpayers as quickly as possible.The
instructions in the Undelivered Refund Check Notice do not promote the most
advantageous methods.Consequently, in
many instances, the processing time for change of address information is
extended or taxpayers do not respond.

In Fiscal Year 2003, the IRS mailed out approximately 479,000
Notices to taxpayers.Because the
Notices are sent out after the USPS has already returned refunds to the IRS,
many Notices also are returned undeliverable.However, some of the Notices do reach taxpayers.We could not estimate with reasonable
certainty how many taxpayer change-of-address responses are attributable to the
mailing of the Notices, but it appears sufficient benefit is derived from the
process to make it worthwhile.Nonetheless,
we have the following concerns with the current Undelivered Refund Check Notice.

·It instructs taxpayers to complete and mail in
an attached change of address form, rather than to use toll-free telephone or Internet
options, to inform the IRS of address changes.

·It does not provide Spanish-language
instructions.

Change of address instructions are not advantageous to the IRS

To request that an undeliverable refund be reissued,
taxpayers may contact the IRS by telephone, by mail, or via the Internet.The Notice instructs taxpayers to complete an
attached change of address form and mail it to the IRS using the enclosed
envelope (see Appendix VI for a copy of the Notice).The Notice also provides a toll-free
telephone number for assistance.Although
a significant number of taxpayers submit the information by mail, providing it
by telephone is the most widely used method.We analyzed a random sample of 396 returned refunds for Tax Year 2003
and determined that 59 percent of the cases were handled by telephone.Figure 2 shows some of the results of our
analysis.

Figure
2: Processing Times for Undelivered
Refunds

Cases Handled
by:

Number
of Cases

Percentage
of Cases

Number of
Weeks to Process

Telephone

232

59%

6.6

Subsequent Filing or USPS Address Change

82

21%

32.1

Mail

43

11%

8.0

Not Determined

10

2%

19.6

Unresolved Cases

29

7%

-

Total

396

100%

12.8

Source:
Treasury Inspector General for Tax Administration
analysis.

Processing by mail averaged about 8 weeks from the time the
Notice was sent out until the refund was reissued, while processing by telephone
averaged 6.6 weeks.The average time to
handle cases systemically (which included address corrections made by the
filing of a subsequent tax return or the USPS) was 32.1 weeks.The overall average processing time was 12.8
weeks.For the cases described as “Not Determined,”
we were unable to determine the exact source for the case resolution.

Not only is the telephone option faster, there are no return
mailing costs involved.Using IRS
information, the estimate of this cost (enclosed return envelope) was $223,636
over the last 5 years and will be about $148,000 in the next 5 years.We do not have information on how labor or
telephone costs would be affected by redirecting taxpayers from use of the mail
to use of the telephone or Internet.However, with more timely resolution of undelivered refunds, taxpayers
would receive the benefit of faster customer service.

Although response by mail is less efficient for both the
taxpayer and the IRS, a segment of taxpayers may want to use this method.To accommodate those who cannot access the
Internet or make a telephone call, the IRS could provide a mailing address on
the Notice and advise the taxpayer to respond with a new address on the copy of
the Notice.Use of return envelopes
should be eliminated because there is no benefit extended to the majority of
recipients who respond by other means, thereby saving the IRS the cost of the
return envelopes.

The IRS maintains a link on its web site called “Where’s My
Refund?”According to the IRS, the link
offers taxpayers refund information as well as an Internet method of submitting
a change of address.If the refund
status indicates the refund check was undeliverable, the taxpayer is prompted
to respond to authentication questions.After successful authentication, the taxpayer’s account will be updated
automatically with the new or corrected address and the refund will be reissued
systemically.Our sample analysis did
not include Internet activity because the application was implemented in
mid-2005, after the majority of Tax Year 2003 undelivered refunds had already
been handled.However, experience with
tax filings shows that electronic submissions have grown significantly in the
past few years and Internet change of address submissions are likely to
increase as well.

The IRS has acknowledged that the Notice needs revision and is
in the process of making a change to promote the use of the Internet option for
submitting changes of address.However,
the Notice still instructs the taxpayer to complete the address change
information at the bottom of the Notice and mail it to the IRS.The Notice does not clearly present the preferred
method of calling the IRS to provide address change information.We
estimate that 22,645 taxpayers with Tax Year 2003 refunds could have been
served more quickly if they had used the telephone method of contacting the IRS
instead of corresponding by mail.Based on Tax Year 2003 results, over a 5-year period as many as 113,225
taxpayers could be served more quickly (see Appendix IV).

Spanish translation on the Notice could improve responses

A
significant number of taxpayers may have difficulty comprehending the Notice if
their English-language skills are not fluent.Although we could not determine how many taxpayers are affected, we
attempted to get a better understanding by analyzing our sample of 396 Tax
Year 2003 undelivered refunds for the presence of Hispanic surnames.We used a Bureau of the Census list of
Hispanic surnames and Internet searches to help determine whether a name was
Hispanic.Ninety-one (23 percent) of the
396 undelivered refunds were for taxpayers with Hispanic surnames.This is somewhat more than the national percentage
of Hispanic surnames in the United States population.Between 2000 and 2004, the Bureau of the
Census reported that between 12.5 percent and 14.2 percent of the United States
population was Hispanic.

Because
a higher proportion of Hispanic surname cases are not resolved, it may be that
some of these taxpayers do not respond because they are having difficulty
understanding the English-only Notice. IRS
goals include improving taxpayer service by providing products in Spanish.To help meet this goal, the Notice could provide
Spanish-language instructions and thus facilitate refund receipts.The telephone number provided on the current Notice
directs taxpayers to Spanish-language help if they desire it.Including text in Spanish explaining the taxpayer’s
refund has been undeliverable and directing them to call the telephone number
would address this issue.Although we do
not have enough information to determine how many taxpayers are affected,
providing Spanish-language information could speed resolution of undelivered
refunds for the Spanish-speaking segment of the population.

Recommendation

Recommendation 1:The Commissioner, Wage and Investment
Division, should revise the Undelivered Refund Check Notice to emphasize
response by telephone and Internet and delete the bottom part of the Notice requesting
change of address information by mail.Some
taxpayers may not want to respond by telephone or Internet, so the IRS should
provide a mailing address and advise taxpayers to respond with their new
address on the copy of the Notice.Because
most taxpayers do not reply via mail, no return envelope should be enclosed
with the Notice.In addition, the Notice should be revised to include sufficient
information in Spanish to explain the purpose of the Notice and to direct
taxpayers to call a telephone number where they can receive Spanish-language
assistance.

Management’s Response:The IRS
partially agreed with this recommendation.The IRS agreed to update the Undelivered Refund Check Notice to publicize
the different options available for taxpayers to update their address with the
IRS and to advise taxpayers that toll-free Spanish assistance is available by
adding the approved language, “Asistencia en espanol disponible” (Spanish assistance is available) after
the toll-free telephone number.The IRS
did not agree to eliminate the bottom portion of the Notice, or to eliminate
sending the taxpayer a return envelope.The IRS does not believe it is good customer service or in the best
interest of the IRS to eliminate the tear-off section of the Notice where the
taxpayer lists information related to the address change or to eliminate
sending the taxpayer a return envelope.

Office of Audit Comment:While we
believe eliminating these items would provide faster, more efficient customer
service with lower mailing costs, we accept the IRS’ decision to continue to
provide taxpayers with the return mail option.

While the recent elimination of Notice research promoted
efficiency and made sense for the majority of cases, reimplementing research
procedures for deceased taxpayer cases would provide benefits to both the IRS
and taxpayers’ estates.Currently, undelivered
or expired refunds for deceased taxpayers are treated the same as those for all
other taxpayers.However, the current systemic
process has not been as effective in resolving deceased taxpayers’ cases as in
resolving other types of cases.Our
review of older cases indicated there was a higher proportion of deceased
taxpayers’ accounts in the unresolved cases than in the resolved cases.We estimate there were 5,289 Tax Year 2001
deceased taxpayer cases with significant balances as of December 2004.

The most common resolution for cases that were not resolved promptly
through taxpayer telephone or mail contact is through a systemic process,
primarily the filing of a subsequent tax return.This systemic process will not resolve these
cases if the estate of the deceased taxpayer does not file a subsequent
return.A higher proportion of deceased
taxpayer cases were unresolved because the IRS normally does not receive a
subsequent return.Depending on the
situation, an estate executor may not be aware that a refund due from the IRS
was undeliverable or expired.

We reviewed the Tax Year 2001 unresolved sample cases for
deceased taxpayers to determine if we could find additional contact information
to help locate a deceased taxpayer’s estate.We reviewed final and estate returns, information return files,
extension requests, copies of various documents provided by the taxpayer’s
estate or trustee, and other information available from IRS electronic files.

The IRS files contained information sufficient to identify a
potential estate contact in many of these cases.We reviewed 43 cases for deceased taxpayers
with undelivered or expired refunds still owed to the estate as of December
2005.Twenty-six of these cases had
supplemental address information that could help locate the taxpayers’
estates.Because the information can
become outdated, it is important that the IRS conducts this research soon after
the refunds are returned undeliverable or after they expire without being
cashed.This would help reduce the
number of unresolved cases and would improve customer service, which is a key
IRS goal.

Recommendation

Recommendation 2:The Commissioner, Wage and Investment Division,
should ensure deceased taxpayer accounts with significant credit balances are identified
and reimplement research procedures for these deceased taxpayer
accounts.The identified accounts should
be researched as soon as possible after
the refund check has been returned undeliverable and prior to an expired refund
being reissued.

Management’s Response:The IRS
agreed with this recommendation and will do further research on the accounts we
identified as part of our sample of older unresolved cases, to determine if an
authorized party with another address is located on the deceased taxpayer’s
return.Based on the results of the
review, the IRS will make procedural changes, if warranted.

The overall objective of the review was to determine whether
the IRS is resolving undeliverable and expired refund check conditions
efficiently and effectively.We
evaluated the current resolution processes and reviewed samples of
undeliverable and expired refund checks to determine whether the processes
might be improved. To accomplish our
objective, we:

I.Evaluated the current controls over the resolution of
undeliverable and expired refund check cases.

A.
Held
discussions with National Headquarters Accounts Management function analysts, managers,
and other employees and with Fresno,
California, Accounts Management
Site employees to determine how undeliverable refund and expired refund check
cases currently are handled.

B.
Reviewed
relevant Internal Revenue Manual sections and analyzed the current procedures
used by the Refund Inquiry and Accounts Maintenance functions to resolve
undeliverable and expired refunds.

C.
Reviewed
relevant Program Requirement Packages and Functional Specification Packages and
analyzed the current programming logic related to systemic refund and notice
issuance.This analysis was cursory, to
determine whether there were any obvious logic problems related to programming.

D.
Determined
the current status of the IRS agreement with the USPS for sharing of the National
Change of Address file.[11]

II.Determined whether the current process used by the IRS
to resolve undeliverable refund cases could be improved to resolve them in a
more efficient and customer-friendly manner.

A.
Selected
a random sample of 396 Tax Year 2003 tax modules[12]
with a Transaction Code 740 posted as of December 2004 from a total
population of 207,750 undeliverable refunds.We selected a random sample so we could
project the results.We obtained our
data from an Individual Master File[13]
extract prepared for the Treasury Inspector General for Tax Administration by
the IRS and stored in our Data Center Warehouse.This sample selection reflects a 95 percent
confidence level and a ± 5 percent precision and is appropriate for an
occurrence rate of 50 percent.We
validated the accuracy of the extracted Individual Master File sample case data
while reviewing sample case information on the Integrated Data Retrieval System
(IDRS).[14]There were no discrepancies between the
sample data and the IDRS.We did not
verify the completeness of the population from which the sample cases were
selected because we did not have a basis for comparison; however, the
population results are roughly consistent with notice data from the IRS from
slightly different time periods.

B.
Analyzed
the sample cases and determined whether the undeliverable refund conditions
were resolved, how they were resolved, what function resolved them (i.e., Refund
Inquiry or telephone units), and the time periods for resolution.

C.
Evaluated
the results of the analysis in Step II.B. to determine whether there were ways
to improve the efficiency of the process for trying to resolve undeliverable
refunds.

D.
Reviewed
the content of the notices issued when refund checks are returned as
undeliverable or expired and determined whether the content was necessary and
appropriate or whether improvements could be made.

E.
Attempted
to determine the effect of any inefficiencies identified in the process and the
cost savings of any improvements recommended by the audit team.

III.Determined whether the current process used by the IRS
to resolve aged undeliverable and expired refund check freeze cases was
effective, either by locating the taxpayer and reissuing the refunds or by
timely disposing of the credit so the account can be dropped from the Master
File.[15]

A.
Based
on the information obtained in Step I., determined whether the current process
used to identify and research aged credit cases was working as intended and whether
it was effective.We determined whether:

1.The programming for generating transcripts for
unresolved undelivered and expired refund freezes is in place and working as
intended.

2.The Internal Revenue Manual instructions used to
research these transcripts were adequate to identify addresses for the
taxpayers.

3.Any steps were taken to resolve aged expired refund
credits.

B.
Determined
whether there was a more effective method of resolving aged credits.

1.Selected a random sample of 400 Tax Year 2001 tax
modules with a Transaction Code 740 posted as of December 2004.We selected those modules with a credit
balance of $100 or more, but less than $25,000, as of December 2004.This population of 39,176 transactions included
both undelivered and expired refund checks.This sample selection reflects a 95 percent confidence level and a ± 5 percent
precision and is appropriate for an expected occurrence rate of 50 percent. We selected a random sample so we could
project results and cases with a credit balance of at least $100 to include
only cases with a more significant balance for audit purposes.We validated the accuracy of the extracted
Individual Master File sample case data while reviewing sample case information
on the IDRS.There were no discrepancies
between the sample data and the IDRS.We
did not verify the completeness of the population from which the sample cases
were selected because we did not have a basis for comparison; however, the
population results are roughly consistent with notice data from the IRS from
slightly different time periods.

2.For the selected sample cases, performed IDRS research
to determine whether it appeared the IRS had for these taxpayers reasonably
current address information that could be used to contact them and resolve the
frozen refunds.

3.Using the sample results, determined whether more cases
could be resolved and used this to support recommendations for
improvement.

C.
Identified
deceased taxpayers with undelivered or expired refunds in the sample from Step
III.B.1. and determined whether any special procedures could be implemented to
more timely resolve the frozen refund condition.

This appendix presents detailed information on the
measurable impact that our recommended corrective actions will have on tax
administration.This benefit will be
incorporated into our Semiannual Report to Congress.

Type and Value of Outcome Measure:

·Taxpayer Burden – Potential; 113,225 taxpayers
over 5 years could receive reissued refunds more quickly by emphasizing
response by telephone and Internet and deleting the bottom part of the
Undelivered Refund Check Notice requesting change of address information by
mail (see page 4).

Methodology Used to Measure the Reported Benefit:

To determine how long it took to resolve cases processed by
different means, we identified a population of 207,750 undelivered refunds in Tax
Year 2003 by querying the Tax Year 2003 Individual Master File[16]
on the Treasury Inspector General for Tax Administration Data Center Warehouse.From the population, we took a random sample
of 396 cases.This sample selection
reflects a 95 percent confidence level and ± 5 percent precision and
is appropriate for an occurrence rate of 50 percent.For the sample cases, we identified
transaction codes that caused a refund reissuance by reviewing various IDRS[17]
command code output.We used IDRS audit
trail files from the Data Center Warehouse to identify the functional unit of
the employee who had initiated the refund reissuance (where applicable).Based on the transaction code and related
data, as well as the functional unit of the initiating employee, we categorized
the resolutions as due to the telephone, subsequent tax return filing, USPS
address change, not determined, and unresolved (i.e., no reissued refund).

To determine how many taxpayers could be affected, we used Tax
Year 2003 results for the mail, 10.9 percent (which was rounded to 11 percent
in Figure 2), and applied that to the population of 207,750 undelivered refunds
for an annual total of 22,645 taxpayers affected.Some taxpayers could be counted more than
once due to multiple undelivered refunds.Using the results from our review we estimated that over 5 years the
benefit could extend to 113,225 taxpayers (22,645 taxpayers per year times
5 years).

The response was
removed due to its size.To see the
response, please go to the Adobe PDF version of the report on the TIGTA Public
Web Page.

[1] The
campuses are the data processing arm of the IRS.They process paper and electronic
submissions, correct errors, and forward data to the Computing Centers for
analysis and posting to taxpayer accounts.

[2] The
Individual Master File is the IRS database that maintains transactions or
records of individual tax accounts.

[3] A Computer
Paragraph 32 Notice, New Refund Check – Old Check Not Cashed, is sent when the
refund is reissued.

[4] A Computer
Paragraph 32A Notice, New Refund Check – Old Check Not Cashed, is sent to
inform the taxpayer he or she must contact the IRS to receive the refund.

[7] A “tax
year” refers to that year’s tax return (e.g., the Tax Year 2003 return would
normally be filed in 2004 by the filing cutoff date of approximately April 15).

[8] We
considered a case “resolved” when a refund was reissued, even though in some
cases the refund might subsequently be returned as undeliverable or expired
again.

[9] The
191.4 million includes 107.3 million individual income tax return refunds sent
in Fiscal Year 2002 plus 84.1 million advance individual income tax
refunds that were mailed in 2001.

[10] We
selected cases with a credit balance of at least $100 to include only cases
with a more significant balance for audit test purposes.

[11] The
National Change of Address file contains updated information from change of
address forms filed with the USPS.The
USPS licenses this information to companies for commercial mail list processing
or internal mail list management.The
purpose is to reduce undeliverable mail.

[12] A
module is a collection of electronic data that is roughly equivalent to a tax
return (e.g., an individual income tax return for a certain year with account
activity related to that return and year is one module).

[13] The
Individual Master File is the IRS database that maintains transactions or
records of individual tax accounts.

[14] The IDRS
is the IRS computer system capable of
retrieving or updating stored information; it works in conjunction with a
taxpayer’s account records.

[15] The
Master File is the IRS database that stores various types of taxpayer account
information.The database includes
individual, business, and employee plans and exempt organizations data.

[16] The
Individual Master File is the IRS database that maintains transactions or
records of individual tax accounts.

[17] The IDRS
is the IRS computer system capable of
retrieving or updating stored information; it works in conjunction with a
taxpayer’s account records.